Public Policies in Canada and the United States

Supported by the Alfred P. Sloan Foundation and Employment and Social Development Canada
Philip Oreopoulos and David Card, Organizers
October 27-28, 2016
Gatineau, Quebec

Comparisons between Canada and the United States offer a promising avenue for studying the impact of differing unemployment insurance, income maintenance, and labor laws on economic behavior and outcomes. Because the two economies are similar in many, but not all, ways, a program that works in one stands a good chance of working in a similar way in the other. As a result, small differences between the two countries provide unique opportunities for natural experiment style research.

National Bureau of Economic Research (NBER) scholars first explored this comparative approach two decades ago. A 1993 book edited by David Card and Richard Freeman, Small Differences that Matter: Labor Markets and Income Maintenance in Canada and the United States, chronicled differences in social programs and has become a standard reference for academics and policy makers interested in comparative labor markets. Twenty-five years later, institutions have changed and new priorities have emerged. The NBER therefore organized a sequel research project. David Card and Philip Oreopoulos organized the project, which involves 13 research teams focusing on topics that include women's participation in the labor force, disability insurance, community college participation rates, labor market returns to human capital, high skill immigration, income mobility, and many others.

In October 2016, these teams presented preliminary findings to an audience of economists and senior staff from Employment and Social Development Canada (ESDC). The research studies will ultimately be reviewed for publication in the Journal of Labor Economics. The following summary highlights the central conclusions of each study.

A major policy concern in the United States is the apparent "topping out" of female labor force participation in the early 2000s. While U.S. women had higher levels of work activity than their Canadian counterparts in the 1960s and 1970s, participation rates today are notably higher in Canada. Hoynes and Stabile explore the potential role of changing financial incentives for work faced by women in the two countries in explaining trends in their labor force participation, focusing on programs for women with children. The researchers provide a rich historical background for the development of social support for low-income women. They document the major shift toward strong work incentives embedded in U.S. welfare reform efforts since the mid-1990s, and the comparatively modest financial reforms in most Canadian provinces.

The researchers attribute the rise in employment and participation of Canadian women, despite the relative size of Canada's reforms to financial incentives, to the lingering effects of the Great Recession, which was much worse in the U.S. With the continuing recovery in the U.S. and the relatively weak economy in Canada, their analysis suggests that the gaps in female employment and participation rates will close and potentially reverse. Another complementary set of explanations focuses on differences in non-financial programs, including subsidized daycare and maternity leave, which are more generous in Canada.

Kevin S. Milligan, University of British Columbia and NBER
Tammy Schirle, Wilfrid Laurier University

Spending on Disability Insurance (DI) programs is an important policy issue in the United States and many other Western countries. Milligan and Schirle examine the effects of different DI policies between the U.S. and Canada on overall DI participation rates, controlling for differences in economic conditions. Overall, DI is more generous in the U.S. than in Canada. The researchers find that these policy differences have a large effect, helping to explain the differences in DI participation rates between the two countries.

Michael Baker, University of Toronto and NBER
Janet Currie, Princeton University and NBER
Hannes Schwandt, University of Zurich

Baker, Currie, and Schwandt study the relationship between average income and area-specific mortality rates in Canada and the United States, focusing in particular on how the mortality gradient has changed over recent decades in the two countries. A major contribution of this research is assembling comparable data for the two countries on area-specific mortality rates. The results suggest that the so-called "mortality gradient" — the negative correlation between measures of area incomes and age-specific mortality rates — has become less steep in both countries, reflecting a combination of improved medical practices and changes in the delivery of health care services.

Why Students Leave Community College: A U.S.-Canada Comparison

Marc Frenette, Statistics Canada and NBER
Judith Scott-Clayton, Columbia University and NBER
Philip Oreopoulos, University of Toronto and NBER
Carolyn Tsao, Harvard University

Community colleges are an important component of the tertiary education system in both Canada and the United States. Nevertheless, a concern often raised is that many community college entrants fail to graduate with a certificate or degree — often dropping out early. However, community colleges in both countries serve many students who are less prepared for postsecondary education, and would presumably have lower rates of completion if they were to attend four-year programs. The properly measured economic return to community college has to take into account the counterfactual outcomes that entrants would face in the absence of community college, rather than compare community college entrants to students who enter university programs after high school.

The research team uses detailed administrative data from one large U.S. state (Ohio) and several provinces of Canada to compare community college entrants and analyze the returns to community college in the two countries. Their results show that community college completion rates in Canada are significantly higher than in the U.S. A key factor that confounds this comparison is that community colleges in Canada provide both general and vocational education, and the focus varies from province to province. Specifically, the systems in many Western provinces are largely designed to provide a gateway to four-year university programs, whereas the systems in the Atlantic provinces are focused on traditional vocational education.

Steven F. Lehrer, Queen's University and NBER
Michael Kottelenberg, Huron University College

Lehrer and Kottelenberg analyze the roles played by cognitive and non-cognitive skills in educational attainment and early labor market outcomes using the Youth in Transition Survey from Canada and earlier results from a study of the National Longitudinal Survey of Youth in the United States. The researchers investigate labor market outcomes for different subgroups through the lens of an educational investment model. They find that cognitive skills have large impacts on labor market outcomes, mainly through their effect on the probability of completing a postsecondary degree. The researchers also find that parental expectations, proxied by information on whether parents have set aside savings for their children's college expenses, have a large effect on future labor market outcomes. In addition, they note that overall labor market conditions are important, particularly for children from less advantaged family backgrounds.

Fabian Lange, McGill University
Kory Kroft, University of Toronto and NBER
Matthew J. Notowidigdo, Northwestern University and NBER
Matthew Tudball, University of Toronto

An earlier study by Lange, Kroft, and Notowidigdo examined differences in the probability of moving from unemployment to employment by people who have been out of work for different amounts of time in the United States. In this paper, Lange, Kroft, Notowidigdo, and Tudball extend the analysis to Canada and contribute to the literature that tries to explain differences in the level of unemployment in Canada and the U.S. Their key finding is that the duration of joblessness matters in both countries, and accounting for this fact helps to explain movements in the relationship between unemployment, job vacancy rates, and the rate of formation of new jobs.

Stephen Jones, McMaster University
Craig Riddell, University of British Columbia

Jones and Riddell build on two previous papers: one by David Card and Riddell (originally published in Small Differences that Matter) that studies the reasons for higher rates of unemployment in Canada than the U.S. in the 1980s, the other by Jones and Riddell which uses data from the U.S. Labor Force Survey to study the differences in rates of job creation for people who are counted as unemployed versus those who are counted as out of the labor force. The researchers update the Card and Riddel analysis, drawing attention to the growing divergence in labor force participation rates between Canada and the U.S. They also extend the analysis in the earlier Jones and Riddell paper to incorporate data from Canada, and compare differences in the rates of job creation for people who were counted as unemployed versus out of the labor force in the two countries. This analysis highlights an important change in the relative number of so-called "discouraged workers" that has occurred in the U.S. since 2000.

David Albouy, University of Illinois at Urbana-Champaign and NBER
Chandler Lutz, Copenhagen Business School
Casey Warman, Dalhousie University and NBER

Urban economists have noted that labor markets in different cities in the United States appear to be diverging, with larger coastal cities experiencing rising wages and employment, and other cities — particularly smaller cities in the center of the country — experiencing stagnant or even declining wages and shrinking employment. Albouy, Lutz, and Warman compare cities in the U.S. and Canada, focusing on a number of issues, including trends in the wage gaps between high school-educated and university-educated workers, trends in the fraction of immigrant workers, and differences in minimum wages, unionization rates, and industry structure. The researchers find that, relative to their U.S. counterparts, smaller cities in Canada have fared very well, and have managed to weather the shocks caused by rapid declines in manufacturing employment in both countries much better than similar cities in the U.S.

Damas De Matos and Parent study a longstanding phenomenon in international migration: the tendency for some fraction of immigrants to Canada who eventually move to the United States. The researchers use data from the U.S. Census and the American Community Survey to compare educational attainments and wages for three groups: 1) people who were born in Canada and have moved to the U.S., 2) people who were born in a country other than Canada, migrated to Canada, and then moved to the U.S., 3) people who were born in a country other than Canada and moved directly to the U.S. The researchers find that 12 percent of foreign-born immigrant males ages 30–40 who were living in Canada in the 1990s and had a post-graduate degree moved to the U.S. over the next five years, relative to a five percent emigration rate for native-born Canadian men in the same age and education groups.

David A. Green, University of British Columbia
Rene Morissette, Statistics Canada
Benjamin M. Sand, York University

Green, Morissette, and Sand analyze the resource boom that led to strong economic conditions in several Canadian provinces during the early 2000s and find large wage gains for lower-educated workers. The researchers note that these gains cannot be directly attributed to high-paying jobs in the resource sector because the overall fraction of these workers employed in the sector is small. Instead, they argue that the presence of a sector with high demand creates a "spillover effect" that raises wages in all sectors.

Audra Bowlus, University of Western Ontario
Haoming Liu, National University of Singapore
Chris Robinson, University of Western Ontario

Bowlus, Liu, and Robinson extend an earlier paper by Bowlus and Robinson looking at inequality trends in the United States to a comparative perspective on the U.S. and Canada. The researchers set up a theoretical model in which changes in wage inequality are caused by either changes in the distribution of human capital across workers or changes in the market rewards to human capital. According to the model, the researchers report, different choices of human capital accumulation by different cohorts lead to persistent "cohort effects" in observed wage outcomes that can confound attempts to measure economy-wide trends in productivity.

Connolly, Corak, and Haeck use detailed tax data to compute measures of intergenerational mobility for Canadian families and compare the estimated rates to those estimated for families in the United States by Raj Chetty, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez. The researchers find that the degree of intergenerational mobility is higher in Canada. As in the U.S., rates of intergenerational mobility vary across cities and regions, with relatively high rates for families in Alberta and Newfoundland, and low rates in regions populated by Aboriginal Canadians. The researchers suggest that strong local economies associated with the resource boom have a strong positive effect on the rate of mobility in both Canada and the U.S.